Copyright by John T. Reed

Bush and Obama have asked Congress to authorize huge bailouts of various financial institutions. The public asks why we should take such unprecedented action that goes against common sense.

We never got a good answer. Rather, we were told something along the lines of “There’s no time to explain. Disaster will occur if you don’t agree to this right now!”

Then Obama makes another speech about how much in believes in transparency and how there will always be transparency during his administration then he refuses to let anyone even read the bill he wants passed.

The American people, using their common sense, say, through public opinion polls, “Hell no!” At which time the men and woman we elected to represent us in the White House and Congress ignore our wishes and pass the bailouts anyway.

What is really going on here?

I am not a conspiracy theorist. Oswald killed Kennedy, black helicopters are just black because they look good in that color, and so on.

But I read a bunch of stuff about the New Deal in the Great Depression recently and I have been watching the events in Washington and on Wall Street closely since the fall of 2008.

The New Deal had nothing to do with recovering from the Depression. It was all about cementing and increasing Democrat political power. Politicians are only about political power. They see recessions and depressions as political threats or opportunities. They could not care less about economic pain among the public as long as they think they can avoid blame for it, and avoiding blame is what they do best.

With that in mind, and looking at the parts of the current crisis and policy, what must be the motives for what we can see and what is being hidden from us?

Here’s what I suspect.

We trusted FDIC insured accounts and CDs with our savings. The highly-leveraged banks gambled those savings on subprime mortgages combined with insurance against default in the form of credit default swaps and such.

The flood of money into the subprime market dramatically increased the values of properties above sustainable levels—a bubble. Inevitably, the bubble burst. The insurance that raised junk mortgages to AAA credit ratings worked in theory, but not in practice, for various reasons that have yet to be disclosed—probably technical stuff like overly thin markets, everybody depending on everyone else to do due diligence, basis risk, and so on.

Now, the amount of FDIC-insured deposits that were lost exceed by far the amount the FDIC can cover with its cash and credit lines.

The politicians have decided we cannot be trusted with that information. If we knew, we would have a nationwide run on every bank. The federal government would have only one option: to print money. That, in turn, would trigger hyperinflation for which the politicians would be blamed and thrown out of office. So instead, they are hoping against hope that a recovery will happen and the home values will go back up enough that the run never happens.

Unfortunately, instead of policies likely to cause a recovery—Reaganesque tax cuts, pro-enterpreneur law changes, drilling, and Ebeneezer Scrooge-esque government spending cuts—we are wasting money with pork, earmarks, union boosting, cap and trade, and free health care for everyone.

I bet the result will be hyperinflation. I am especially interested in any informed insights readers can supply.

Here is an email I got on 4/24/09, and my response:

Hey John,

You know I'm a big fan of your articles, but your latest one on the bailout seems a bit far-fetched to me.  Don't get me wrong, there's plenty of rogue elements in every administration that passes through the White House doors.  But to think that they're covering up an FDIC problem seems a bit of a stretch.  If that was the case, why would they be refusing banks that are attempting to return the TARP money?

Just some food for thought.

By the way, congrats on your article in the NY Times!

Regards,

Reed response:

Alternative explanation needed. They just revealed that the head of Merrill Lynch was told to not reveal material problems when selling to B of A during the Bush Administration. That’s blatantly illegal. There have been many instances over many years of the government behaving on the basis that the public could not handle the truth therefore they withheld it.

We were promised transparency and we are getting more secrecy and bum’s rushes than ever.
Returning the TARP money is a separate issue. The argument for making everyone take it was that if only those who needed it took it, the public would know who needed it and they wanted the public not be be able to tell that. More “transparency.” If they now allow some to give it back, once again the public can tell who really needed it.
Thanks for your kind comments.
Best wishes,
Jack Reed

I appreciate informed, well-thought-out constructive criticism and suggestions. If there are any errors or omissions in my facts or logic, please tell me about them. If you are correct, I will fix the item in question. If you wish, I will give you credit. Where appropriate, I will apologize for the error. To date, I have been surprised at how few such corrections I have had to make.